Liquidity crisis makes Brazilian cotton trends weak

Players from the industry have been showing small interest in purchasing for immediate delivery, claiming that they have enough stocks. In general terms, only a few trades have been closed in the spot market involving low-quality cotton.

Between November 29 and December 16, the CEPEA/ESALQ Index for cotton type 41-4 upped 0.56% and closed at 2.1248 real (0.9123 dollar) per pound on Dec. 16.

In spite of the low liquidity in the spot market, many agents are already trading the product to deliver in 2014 – both in January (current season) and from July to December (2013/14 crop). The increase of futures contracts at ICE Futures brought expectations for the beginning of the year, leading trading companies to offer batches at higher values compared to the CEPEA/ESALQ Index.

Conab (National Company for Food Supply) data indicated that the cotton production in the 2013/14 crop may move up 25% in relation to the previous, totaling 1.64 million tons. This fact may be a result of the cropped area increase, of 20.4%, to 1.08 million hectares. Conab indicates that the area increase was affected by the price recovery during 2013 and price drops for corn. The average yield in Brazil might pick up only 3.8%.

In the partial of this year (January – November), Brazilian shipments totaled 527.6 thousand tons, 44% less than in the same period of 2012, according to Secex (Foreign Trade Secretariat). Comparing November to October, the decrease is 42.6%.

Icac (International Cotton Advisory Committee) data indicate that the world production may surpass the consumption in 6.9%, totaling 25.64 million tons. World stocks might increase 10% from the 2012/13 season to the next.

Center for Advanced Studies on Applied Economics (CEPEA)